Westlife Development Refer to Important Disclosures at the End of This Report CMP Target Price

India Equity Research | Retail © March 17, 2021 Initiating Coverage Emkay Your success is our success Westlife Development Refer to important disclosures at the end of this report CMP Target Price

Rs 518 Rs 600 as of (March 16, 2021) 12 months Still in the early days of QSR marathon Rating Upside BUY 15.8 %

Our bullish investment thesis on Westlife Development (WLDL) rests on three pillars: 1) Change in Estimates Superior unit economics – about 30-40% higher revenue per store – relative to peers; EPS Chg FY21E/FY22E (%) -/- supported by value pricing and strategies aimed at increasing in-store visits and offering Target Price change (%) NA complementing menus. Recent initiatives on digital could provide a further fillip. 2) Target Period (Months) 12 Comparison with Domino’s highlights a 3x store roll-out potential – offering a long visibility Previous Reco NA into penetration-led growth. We expect mid-teen revenue growth for several years with an upside risk. 3) Our relative analysis of a peer at a similar scale throws a strong case for a Emkay vs Consensus 500bps upside in EBDITA margins. Higher unit economics should lead to industry-leading EPS Estimates ROEs as high upfront overheads get more corralled with scale. The pandemic has already FY21E FY22E reset the cost curve lower, commensurate with a 20% lower revenue. Emkay (5.1) 1.7 Net net, we expect revenue/EBDITA CAGRs of 10%/20% through FY24, and importantly, similar Consensus (5.1) 3.3 growth continuing well beyond that as well. ROE should see a sharp improvement to mid- Mean Consensus TP (12M) Rs 519 teens. We are initiating coverage with a Buy rating and a Jun’22E TP of Rs600, based on 32x Stock Details Jun-23E EV/EBITDA (backed by our long-term DCF analysis). Key risk: Delay in full unlocking may pose risk to our SSG recovery assumptions. Bloomberg Code WLDL IN . Powerful brand franchise with a long growth runway: McDonald’s leads global QSRs with 38k Face Value (Rs) 2 restaurants, and enjoys superior unit revenues vs. peers, thanks to its value proposition and wide Shares outstanding (mn) 156 portfolio/brand extensions. With full unlocking, WLDL will likely outperform, led by digital initiatives, 52 Week H/L 535 / 267 convenience channels and dine-in recovery. In addition, even as WLDL operates only in the South M Cap (Rs bn/USD bn) 81 / 1.11 and West (S&W) region, the region accounts for 65% of QSR revenues. Comparison with Daily Avg Volume (nos.) 3,24,762 Domino’s (~800 stores in S&W) highlights a 3x store expansion potential. WLDL’s expansion Daily Avg Turnover (US$ mn) 2.1 approach has been disciplined (network scale up 50% in FY15-20) to limit store closures.

However, rising profits/FCFs and attractive QSR outlook may drive an acceleration. Shareholding Pattern Dec '20 . Margins are suboptimal; expect strong gains with scale and cost reset: In the past five years, Promoters 59.1% WLDL’s operating margins expanded 700bps to 9%, driven by product mix changes and cost FIIs 9.6% efficiencies. Margins are still sub-optimal in spite of higher sales and gross profit per store vs. DIIs 20.5% peers. Comparison of overhead costs vs. peers and relative analysis of JUBI at similar scale throws a strong case of 500+bps margin expansion at higher revenue scale. Cost-structure reset Public and Others 10.9% in the pandemic has also been impressive, reaching pre-Covid-19 margins on 20% lower sales. Price Performance We forecast WLDL to reach mid-teen EBITDA margins by FY24 (+600bps gain over FY20-24E). (%) 1M 3M 6M 12M . Poised for sustainable growth and profitability turnaround; initiate with Buy: We estimate Absolute 13 10 28 51 WLDL to record sales/EBITDA growth of 10%/20% in FY20-24E, despite the Covid-19-induced disruption in FY21 (16% sales CAGR ex-Covid). We assume a full recovery in sales/store in Rel. to Nifty 17 1 - (7) FY22E and a 9% CAGR in FY22-24E. WLDL’s highly scalable franchise and improving profitability Relative price chart make it an attractive long-term bet. We value WLDL at 32x Jun-23E EBITDA, yielding a TP of Rs600. . Faster store expansion is an upside risk: Our DCF assumptions w.r.t. expansion may be conservative at 32 stores/year over the next 20 years. Growing profits/FCFs may drive upsides. Assuming faster store additions at a 9% CAGR (last 10 years) will increase the fair value by 14%. Please see our sector model portfolio (Emkay Alpha Portfolio): Consumer Goods & Retail (Page 30)

Financial Snapshot (Consolidated)

(Rs mn) FY20 FY21E FY22E FY23E FY24E Source: Bloomberg Revenue 15,473 9,508 16,302 19,095 22,346 EBITDA 2,135 670 2,718 3,504 4,300 This report is solely produced by Emkay Global. The EBITDA Margin (%) 13.8 7.0 16.7 18.4 19.2 following person(s) are responsible for the production of the recommendation:

APAT 94 (801) 270 611 1,003 Ashit Desai EPS (Rs) 0.6 (5.1) 1.7 3.9 6.4 [email protected] EPS (% chg) (56.1) (956.7) 0.0 126.6 64.2 +91 22 6612 1340 ROE (%) 1.6 (15.1) 5.4 11.3 16.1 P/E (x) 862.2 (100.6) 299.1 132.0 80.4 Devanshu Bansal EV/EBITDA (x) 37.9 121.5 29.7 22.9 18.3 [email protected] P/BV (x) 14.0 16.7 15.8 14.1 12.0 +91 22 6612 1385

Source: Company, Emkay Research

Emkay Research is also available on www.emkayglobal.com and Bloomberg EMKAY. Please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.

Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Story in Charts

Exhibit 1: McDonald’s commands superior unit revenues and a Exhibit 2: WLDL has highest unit revenues; but is underpenetrated much larger brand presence across markets vs market leader

38,695 24,104 18,838 17,020 18,703 50 50 60 3.5 39 46 47 150 40 42 50 2.6 3.0 31 40 2.5 30 100 19 30 2.0 20 15 17 9 8 20 1.2 1.2 1.5 10 0.8 10 50 100 0.7 11 1.0 0 0 28 0.5 23 13

14 KFC

0 0.0 JUBI

WLDL Subway

McDonald's KFC BK* Dominos Pizza Hut Plaza

Connaught Burger King Burger Systemwide Sales (USDbn) Rev/Store (USDmn) -Store Count (BOX) FY20 India revenues (Rsbn)- LHS Revenue/Store (Rsmn)- RHS

Source: Company, Emkay Research, *BK is Burger King Source: Company, Emkay Research, Technopak, Cogencis

Exhibit 3: QSR franchises offer faster growth vs consumer goods Exhibit 4: Convenience channels have driven faster recovery post Covid-19

25 22 24 20 20 18 16 17 15 15 12 11 10 13 10 9 10 10 6 6 6 5 5 3 2 0

FY15 FY16 FY17 FY18 FY19 FY20

CAGR FY15-20 Consumer Staples JUBI WLDL, YoY growth (%)

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 5: WLDL unit revenue growth has been faster than peers Exhibit 6: WLDL unit metrics are attractive; offer scope for margin expansion Unit metrics BK WLDL JUBI 60 49 50 42 40 Rs mn FY19 FY20 FY19 FY20 FY19 FY20 38 34 35 38 40 29 29 Average Stores (#) 158 224 287 308 1,215 1,314 22 25 20 Revenue 40 38 49 50 29 29 Gross Profit 25 24 31 33 22 22 0 EBITDA 0.9 0.8 4.1 4.5 5.0 4.4 WLDL Burger King JUBI Restaurant EBITDA 3.4 2.9 7.1 7.2 NA NA FY17 FY18 FY19 FY20, Revenue/Store (Rsmn) Gross Block (total 25 25 35 28 10 11 stores) Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021 | 2 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 7: S&W has higher share of QSR outlets & revenues Exhibit 8: WLDL has ~3x expansion opportunity when compared to Dominos presence in S&W

70 65 1000 60 785 800 50 40 35 600 30 400 319 20 200 118 10 43 0 0 South and West India North and East India Stores (FY20 end) Cities (FY20 end)

Domino's- South and West McDonald’s- South and West Chain market geographic revenue mix (%)

Source: Emkay Research, Technopak Source: Company, Emkay Research

Exhibit 9: Margin gains have been impressive but still sub-optimal; Exhibit 10: Cash generation to see sharp improvement with higher should accelerate with structural cost savings & scale efficiencies margins 66.5 67.0 68.0 65.6 15.0 2.5 1.9 2.0 1.7 66.0 64.1 64.0 14.0 12.0 1.4 1.3 63.1 1.5 1.2 1.1 1.2 12.1 0.9 0.9 0.9 1.0 64.0 1.0 0.9 0.8 0.5 61.4 9.0 0.6 0.5 0.7 62.0 60.7 0.5 0.5 0.5 0.6 8.5 9.0 6.0 60.0 58.8 0.0 6.8 -0.5 5.1 5.0 3.0 -0.4 -0.3 -0.4 58.0 -1.0 -0.5 -0.4 -0.5 2.0 -0.9 56.0 0.0 -1.5 -0.9

54.0 -3.0

FY15 FY16 FY17 FY18 FY19 FY20

FY21E FY22E FY23E

FY15 FY16 FY17 FY18 FY19 FY20

FY22E FY23E FY21E CFO (Rsbn) Capex (Rsbn) FCF (Rsbn) Gross Margins EBITDA margins*, (%)

Source: Company, Emkay Research,*Pre-IndAS116 EBITDA margins Source: Company, Emkay Research

Exhibit 11: RoCE expected to see sharp improvement Exhibit 12: Valuations now appear reasonable vs JUBI 21.1 25.0 500 385 20.0 13.0 400 15.0 6.5 321 4.9 300 258 10.0 1.5 184 194 199 5.0 -2.8 -3.0 200 12111390 127 117 0.0 171 167 60 66 63 68 46 -5.0 -6.7 100 145 59 55 28 104 102 17 -10.0 0 70 45 45 -15.0 -1

-20.0 -13.8 -100

FY15 FY16 FY17 FY18 FY19 FY20

Jun/16 Jun/17 Jun/18 Jun/19 Jun/20

Mar/16 Mar/17 Mar/18 Mar/19 Mar/20 Mar/21

FY23E FY21E FY22E

Dec/16 Dec/17 Dec/18 Dec/19 Dec/20

Sep/16 Sep/17 Sep/18 Sep/19 Sep/20

WLDL RoCE (%) WLDL valuation premium to JUBI (%)

Source: Company, Emkay Research,*Pre-IndAS116 comparable RoCE Source: Company, Emkay Research

March 17, 2021 | 3 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

WLDL – Still in the early days of QSR marathon

WLDL offers a solid growth franchise - McDonald’s, which is the biggest player in QSR globally, with superior brand equity and unit revenues. McDonald’s offers a strong value proposition with focus on affordable pricing, speed, convenience and technology. These are difficult to replicate by competition and have made McDonald’s the largest and most profitable QSR in the highly fragmented space. The Indian QSR market is limited to a few large successful brands, with WLDL being the second-largest QSR in terms of revenues and profits. WLDL has consistently improved its execution and track record in the last 5 years, growing sales/EBITDA at 15%/56% CAGR. Post Covid, QSR is recovering faster than other categories, and WLDL is better-placed to outperform ahead with digital initiatives, convenience channels, dine-in recovery and increased efficiencies.

McDonald’s – a powerful brand McDonald’s is globally the largest QSR brand with attractive unit metrics, driven by its brand pull and wide portfolio. It has ~39K restaurants globally commanding a dominant presence in QSR across most large countries, excluding China where KFC is larger. McDonald’s average sales/store are 2-3x of other QSR players, indicating its strong brand pull and greater consumer acceptance for its wide range of offerings. McDonald’s in India operates through two master franchisees which operate South & West and North & East, respectively. Its presence in India is so far substantially under-indexed vs. other QSR peers. Despite its entry in India in 1996, the presence is low with the number of overall outlets standing at 456 vs. Dominos at 1,300+ outlets (Dec’20 end). This is due to a lack of expansion by its North & East franchisee on account of a legal dispute and modest expansion by South & West franchisee. Despite its low presence, McDonald’s is a well-established brand with high consumer acceptance. With the North & East region getting a new franchise partner (MMG Group) and South & West gradually accelerating its pace of expansion, McDonald’s should see a faster expansion, capturing the growth potential in domestic QSR space.

Exhibit 13: McDonald’s brand is the largest within global QSRs Exhibit 14: Superior unit metrics highlight brand strength

120 3.0 38,695 2.6 100 2.5 80 100 2.0 24,104 60 1.2 1.5 18,838 18,703 17,020 1.2 0.8 40 0.7 1.0 28 23 20 14 13 0.5 0 0.0 McDonald's KFC BK* Pizza Hut Dominos McDonald's KFC BK* Dominos Pizza Hut

No. of stores Systemwide Sales (USDbn) Rev/Store (USDmn) -Store Count (BOX)

Source: Company, Emkay Research, *BK is Burger King, CY19 end store count Source: Company, Emkay Research, *BK is Burger King

Exhibit 15: Mcdonald’s parent M-cap vs peers (USD bn) Exhibit 16: India presence is under-indexed & offers huge headroom

164 1,314

541 477 456 443 270

32 30 14 Dominos Subway KFC McDonald's Pizza Hut Burger King

McDonald's Yum Foods RBI* Dominos No. of stores

Source: Emkay Research, *RBI is Restaurants Brand International Source: Company, Technopak, Emkay Research, *overall India restaurant count

March 17, 2021 | 4 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 17: McDonald’s is the largest QSR brand in all major countries (ex-China); presence in India is currently under-indexed

6,534

3,383

2,910

2,281

1,485

1,478

1,312

1,126

1,323

1,023

999

926

1,133

907

801

732

698

673

669

642

636

601

520

470

461

460 460

449

420

416

404

338

300

267

262

248

224

203

182

144

84 70

China Japan France Canada UK Brazil Australia Russia Phillipines India Mexico McDonald's Dominos Pizza Hut KFC, CY19/FY20 end Store Count

Source: Company, Emkay Research McDonald’s offers compelling value, speed and convenience

McDonald’s competes on product quality, hygiene, menu variety, price, convenience and service experience, in the highly fragmented restaurant industry. It offers a compelling value proposition that helps it draw in customers of unorganized segments/smaller restaurants. The brand’s growth strategy appears to be based on Delivery, McCafe, EOTF and Digital, to help further improve upon its core benefits - food taste, convenience, compelling value and consumer trust. These are key drivers for its high store throughputs and unit revenues that are highest among its peers. Comparison of McDonalds India product prices vs. other convenience food options highlights the superior value it offers, along with a great experience. McDonald’s India product pricing (on a per calorie basis) is cheaper that competes even with the most common Indian snacks/meals offered by smaller, mostly unorganized restaurants. As restaurant-industry continues to struggle post the pandemic, WLDL’s is in a sweet spot — McDonald’s value platform/affordable pricing and technology investments are likely to drive market share gains from rivals.

Exhibit 18: Comparison of McDonald’s pricing on per-calorie basis Variant Calories Price Price/100 calories (Rs) Vada-Pav 250 10 4 Mc Aloo Tikki 375 50 13 Mc Veggie 475 109 23 BK- Chicken Whopper 650 180 28 Mc Chicken 450 125 28 Medu Vada 175 50 29 BK Mutton Whopper 650 260 40 KFC (3-piece bucket) 750 300 40 Paneer wrap 375 200 53 Idli 75 50 67 Masala Dosa 175 150 86 Subway (6 inch) 225 200 89 Biryani 350 500 143

Source: Emkay Research, www.myfitnesspal.com

March 17, 2021 | 5 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

WLDL well-placed within top QSRs; McDonald’s offers huge growth opportunity Indian QSR market is now dominated by a handful of global brands including Domino’s, McDonalds, Yum brands (Pizza Hut & KFC) and recent entrant Burger King. New global entrants are likely to face stiff competition from these resulting in limited success as witnessed by some other global brands including Johnny Rockets, Nando’s, US Pizza, Wendy’s, etc. WLDL is the master franchisee for McDonald’s in the South and West markets, and offers the best play on McDonald’s growth opportunity in India, in our view. It is also the second-largest domestic QSR in terms of revenue and profitability after JUBI and has attractive unit metrics. It has been a master franchisee of McDonald’s since 1996 and compared with other peers, WLDL has exhibited an improving track record with steady SSGs, store expansion and improvement in profitability and cash generation. In terms of network expansion, WLDL has been consistent and has expanded its store network at a CAGR of ~9% over FY15-20, in line with Domino’s, increasing its store presence by 50% to 319 outlets in FY20.

Exhibit 19: WLDL is second largest QSR franchise with higher unit Exhibit 20: WLDL is also the second most profitable QSR; after JUBI revenues

50 60 7.0 6.0 50 39 47 5.0 46 50 6.0 40 42 4.1 5.0 5.0 40 3.4 4.0 30 31 4.0 19 30 3.0 20 15 3.0 1.8 17 20 2.0 9 8 2.0 1.1 10 0.8 10 1.0 1.0 11 6.1 1.2 0.8 0.6 0 0 0.0 0.5 0.1 0.0 JUBI KFC WLDL Subway Burger Connaught JUBI WLDL KFC Connaught Pizza Hut Burger King Plaza Plaza King

FY20 India revenues (Rsbn)- LHS Revenue/Store (Rsmn)- RHS FY19 EBITDA (Rsbn)-LHS EBITDA/Store (Rsmn)- RHS

Source: Company, Emkay Research, Technopak Source: Company, Emkay, Cogencis, Technopak, *FY20 data not comparable

Exhibit 21: WLDL has exhibited steady margin improvement; Exhibit 22: Faster SSG and store expansion have delivered higher profitability higher than most peers after JUBI growth’- 5Yr sales growth CAGR of 15% EBITDA Margin Comparison (%) 30 25 17 22 24 15 25 18 19 17 11 10 20 16 15 12 12 8 8 15 9 10 6 8 9 7 8 6 6 6 6 5 5 4 10 4 7 3 4 0 5 3 2 2 1 2 0 -6 0 -4 -5 -12 -10 -6 -6 -11 -18 -16

-17

FY14 FY15 FY16 FY17 FY18 FY19 FY20 -24 -23 FY13 FY16 FY17 FY18 FY19 JUBI WLDL BK Devyani Sapphire SSSG Growth through store additions Overall growth, (%)

Source: Company, Emkay Research, Cogencis, *FY20 data not comparable Source: Company, Emkay Research

March 17, 2021 | 6 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

QSR’s provide a fast and long runway for growth

Quick service restaurants (QSRs) in India have displayed faster growth trends than other consumer categories and offer a big opportunity with strong scalable franchises. JUBI/WLDL are growing in double digits and have recorded five-year sales CAGRs of 13%/15% vs. 5% for our consumer staples universe. Post Covid, QSR’s have recovered faster and are better geared to drive growth through convenience channels and digital initiatives. These along with several closures of other chained restaurants is likely to drive faster growth and share gains. QSRs have grown the fastest at 17% CAGR over the last five years and are still extremely small in the organized food services market. The market for QSR chains is estimated to be at Rs190bn (FY20-end), contributing to ~50% of restaurant chain market size of Rs390bn. This is extremely small considering the organized and overall food market of Rs1.6tn and Rs4.2tn, respectively. The QSR industry has added outlets at a healthy CAGR of ~9% over FY15-20. The headroom for expansion remains very large with low penetration beyond Top-8 cities as these cities contribute ~87% of chain industry revenues currently. Also, restaurant chains currently address <15% of overall population, indicating significant room for penetration increase. Within the chain QSR sub-segment, ‘burgers and sandwiches’ format has grown at an in-line-with-industry CAGR of ~19% in FY15-20, while the pizza/chicken formats have grown at lower CAGRs of 13%/12%. Interestingly, Indian ethnic format has grown at a stronger CAGR of 48%, albeit on a low base.

Exhibit 23: QSR’s have grown more than 2x in 5 years; expected to Exhibit 24: Growth for JUBI/WLDL has been much ahead of grow faster taking share from unorganised consumer staples over FY15-20

100% 25 22 24 159 20 184 210 253 307 348 825 20 18 80% 456 502 16 17 15 586 683 813 911 1,909 15 12 11 10 13 60% 10 9 10 10 6 6 40% 6 5 2,030 2,164 2,320 5 3 2 2,486 2,650 2,635 0 20% 3,231 0

FY15 FY16 FY17 FY18 FY19 FY20

CAGR

FY15-20

FY16 FY20 FY15 FY17 FY18 FY19

FY25E Consumer Staples JUBI WLDL, YoY growth (%) Unorganised CDR QSR PBCL Café FD/IC FDR, Rsbn

Source: Emkay Research, Technopak Source: Company, Emkay Research

Exhibit 25: Eating out frequency has been increasing in urban cities Exhibit 26: Similar trends are visible in ordering-in frequency as well

7 6.1 6.3 2.5 5.7 2.1 6 5.3 5.5 1.9 5.0 4.8 2.0 1.7 5 4.3 4.6 1.4 1.5 4 1.1 1.0 0.9 0.9 3 1.0 0.6 2 0.5 1 0 0.0 Mega Metros Mini Metros Tier-1 & Tier-2 Mega Metros Mini Metros Tier-1 & Tier-2

FY14 FY17 FY20, Eating-out frequency/month (No.) FY14 FY17 FY20, Ordering-in frequency/month (No.)

Source: Emkay Research, Technopak Source: Emkay Research, Technopak

March 17, 2021 | 7 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 27: QSR industry is expected to grow the fastest among all Exhibit 28: Store counts of Indian QSRs has grown at a healthy ~9% the categories with 19% CAGR over FY20-25E CAGR over FY15-20 19% 20% 3,500 12.5 14 17% 16% 15% 3,000 9.8 9.8 12 15% 8.8 11%11% 11%11% 2,500 8.3 10 10% 2,000 8 7% 7% 5.4 5% 1,500 2,913 3,198 6 5% 2,552 3% 1,000 2,085 2,346 2,690 4 0% 500 2

0 0

FDR

Café CDR

QSR FY15 FY16 FY17 FY18 FY19 FY20

FD/IC PBCL

CAGR FY 15-20 CAGR FY 20-25E, (%) QSR Outlets (Major chains in India) YoY growth, % Source: Emkay Research, Technopak Source: Emkay Research, Technopak

Exhibit 29: With-in QSRs, Burgers & Sandwich segment has grown Exhibit 30: Third-party aggregators have provided an additional in line with industry channel of growth, helping organized players

100% 20 18.1 9 13 5 80% 15 21 15 60% 15 10.2 9.7 35 10 8.4 40% 27 5.4 4.4 4.7 4.8 20% 31 31 5 0% 0.3 FY15 FY20 0 FY16 FY20 FY25E

Burger&Sandwich Pizza Chicken Indian Ethnic Others, % Mix Aggregator Delivery Restaurant Delivery Total Delivery, USDbn

Source: Emkay Research, Technopak Source: Emkay Research, Technopak

Exhibit 31: Domino’s commands the largest revenue share among all QSR players followed by McDonald’s and KFC Market Share by Revenue Market Share by no. of outlets

21% 19%

47% 6% 8% 56% 11% 7%

10% 6%

5% 4% Domino's Subway McDonald's KFC Burger King Others Domino's Subway McDonald's KFC Burger King Others

Source: Emkay Research, Technopak

March 17, 2021 | 8 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Post the pandemic QSRs are recovering fast and gaining share After strong SSSG of 15%+ in FY18-19, growth across QSR players moderated in FY20 due to restaurant closures on account of Covid-19. However, growth recovery appears to be steady with convenience channels (50-65% of sales) already returning to growth. Incrementally, post Covid-19, QSR segment has emerged stronger than other segments due to better hygiene, technology initiatives driving growth through Delivery/Takeaway channels resulting in a faster recovery. With closure of several restaurants and better traction in QSR, it is expected to emerge stronger post Covid-19 and see an acceleration in growth and market share.

Exhibit 32: QSRs have recovered much faster relative to other restaurants (Specialty Restaurants/ Sayaji Hotels)

0 0 -20 -18 -14 -12 -40 -33 -25 -37 -60 -48 -47 -60 -55 -66 -80 -74 -78 -75 -82 -100 -91 -98 -120 Q1FY21 Q2FY21 Q3FY21 JUBI Pizza Hut KFC WLDL Specialty Sayaji, YoY growth, %

Source: Company, Emkay Research

Exhibit 33: QSRs have been relatively prompt in providing hygiene assurance and in introducing tech-initiatives to drive delivery/takeaway/On-the-Go COVID-19 led Initiatives QSRs CDRs Contactless Experience/Hygiene branding   Takeaway/On-the-go/Curb-side (Online)   Own Mobile Application   Third Party Aggregators (Swiggy/Zomato)   Value offerings/Combo Family Packs   Source: Emkay Research

Exhibit 34: Convenience channels like Delivery/Takeaway have Exhibit 35: Similar growth trends are visible for WLDL as well already returned to growth for JUBI

200 2.5 172 171 165 157 2.0 2.0 150 125 118 115 113 108 107 1.5 97 100 1.1 100 1.0 1.0 1.0 0.9 0.8 60 1.0 0.8 46 49 50 36 0.5

0 0.0 Delivery Takeaway Dine-in Overall Drive Through McDelivery Dine-in

Oct'20 Nov'20 Dec'20 Jan'21, JUBI channel-wise YoY recovery Feb'20 Sep'20 Dec'20, Channel recovery vs. Feb'20 sales

Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021 | 9 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

McDonald’s has multiple growth levers - wide portfolio and brand extensions

McDonald’s has a wide product portfolio and brand extensions catering to more eating occasions - driving higher unit revenues. WLDL has successfully expanded McCafe and McDelivery, increasing their presence by 100%/77% over the last five years, resulting in faster SSG growth and the highest unit revenues among peers. Consistent product innovation and scale up of McCafe, McBreakfast and EOTF stores offer multiple growth drivers to further increase unit revenues. Besides faster growth, WLDL has also delivered on its margin improvement targets (+700bps in 5 yrs), increasing its profitability and cash generation which should support higher growth ahead. WLDL has a powerful franchise – McDonalds, which offers a huge runway for growth. While profitability in initial years was low due to higher investments behind brand/stores and a subscale operation, WLDL has now been consistently improving its track record and execution with better SSG’s, steady expansion and improving profitability. Over the last five years WLDL has increased its store presence by 50%, more than doubled revenues and expanded operating margin by 700bps with recent years recording an acceleration till Q3FY20 before Covid-19 impacted the business. With sales recovering to pre-Covid-19 levels by Q4, reduced competition and a leaner cost structure is likely to help WLDL be in a stronger position and grow the franchise faster with higher profitability. The expansion in consumer offerings, extension of formats to McCafe/Delivery and Drive Thrus, along with improved digital capabilities, have driven an acceleration in SSGs and store additions. All this has resulted in WLDL recording faster growth in sales/store and higher revenue/store (Rs50mn/store) vs. peers.

Exhibit 36: WLDL SSG performance has improved led by Delivery, Exhibit 37: Margins gains driven by product mix and cost efficiencies McBreakfast and McCafe scale up 14.6 25 22 24 68.0 14.4 21 13.1 15.0 20 66.0 11.9 20 19 11.0 16 16 65.6 12.0 16 64.0 15 14 14 13 8.7 64.1 11 62.0 63.1 9.0 11 12 11 10 11 9 9 10 61.4 10 60.0 60.7 9.0 8 8 8.5 6.0 6.9 5 3 3 58.0 58.8 5.2 5.1 3.0 56.0 0 2.0 FY15 FY16 FY17 FY18 FY19 FY20 54.0 0.0 FY15 FY16 FY17 FY18 FY19 FY20 WLDL QSR Organised Overall Growth (%) Gross Margins Store Margins EBITDA margins, (%)

Source: Company, Emkay Research, Technopak Source: Company, Emkay Research, ^Pre-IndAS116 EBITDA margins

Exhibit 38: RoCE should remain on an improving trend with strong Exhibit 39: Increase in FCF may provide incremental growth capex SSSG and continued margin improvement 21.1 25.0 2.5 1.9 1.7 20.0 13.0 2.0 1.4 15.0 1.3 1.2 6.5 1.5 0.9 1.0 1.1 1.2 10.0 4.9 0.9 0.9 0.9 1.5 1.0 0.8 0.5 0.7 5.0 -2.8 -3.0 0.6 0.5 0.5 0.5 0.6 0.0 0.5 -5.0 -6.7 0.0 -0.5 -10.0 -0.4 -0.5 -0.4 -0.3 -0.4 -1.0 -0.5 -15.0 -0.9

-20.0 -13.8 -1.5

FY15 FY20 FY16 FY17 FY18 FY19

FY15 FY16 FY17 FY18 FY19 FY20

FY21E FY22E FY23E

WLDL RoCE (%) CFO (Rsbn) Capex (Rsbn) FCF (Rsbn)

Source: Company, Emkay Research, ^Pre-IndAS116 comparable RoCE Source: Company, Emkay Research

March 17, 2021| 10 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 40: WLDL unit metrics are impressive – higher revenue and profits / store Unit metrics BK WLDL JUBI Rs mn FY19 FY20 FY19 FY20 FY19 FY20 Average Stores 158 224 287 308 1,215 1,314 Revenue 40 38 49 50 29 29 GP 25 24 31 33 22 22 EBITDA 0.9 0.8 4.1 4.5 5.0 4.4 Restaurant EBITDA 3.4 2.9 7.1 7.2 NA NA Gross Block (total stores) 25 25 35 28 10 11 Source: Company, Emkay Research, ^Pre-IndAS116 EBITDA Product innovations and brand extensions to drive impressive SSG growth New product launches and brand extensions have been key drivers of stronger SSGs by capturing more eating occasions. These include introduction of breakfast options, Rice/Wraps/Naan options for Lunch and expansion of its brand extensions – McCafe and McDelivery across stores. These brand extensions have helped WLDL to increase revenues per store with low incremental investments, thereby improving its store profitability as well. Revenue/store for WLDL increased from Rs37mn in FY17 to Rs50mn in FY20, led by these initiatives – ~11% CAGR which is faster than peers. With strong traction in new extensions like Breakfast, Café, Delivery, WLDL expects to move toward Rs60-65mn sales / store in near future. SSG is expected to remain healthy due to QSR industry tailwinds (hygiene, convenience and speed), menu innovations (introduction of premium gourmet burgers, chicken in bone), brand extensions (McBreakfast, McCafé, McDelivery) and digital initiatives. WLDL expects the convenience channel to remain a key growth driver, along with a revival in the dine-in channel, upon full unlocking. We note revenue/store of McDonald’s in India is relatively much lower (50-70% lower) when compared with per-store revenues in other countries. Based on McDonald’s global system-wide sales, average revenue/store is Rs180mn vis-à-vis Rs50mn in India.

Exhibit 41: Revenue/store is highest and has grown faster led by Exhibit 42: SSG has been largely ahead of peers new launches/brand extensions

60 35 50 29 49 30 50 42 40 25 38 38 17 40 34 35 20 16 16 29 29 15 14 30 25 12 22 10 3 4 4 3 20 5 0 2 10 0 -5 0 -2 0 -10 -6 WLDL Burger King JUBI FY15 FY16 FY17 FY18 FY19 FY20

FY17 FY18 FY19 FY20, Revenue/Store (Rsmn) WLDL JUBI BK*, SSSG (%)

Source: Company, Emkay Research Source: Company, Emkay Research, BK’s SSG growth for FY15-17 is not available

March 17, 2021| 11 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

McCafe, McDelivery and McBreakfast scale-up to increase unit revenues further Scale up of brand extensions have helped deliver strong same store sales growth over the last few years. Total McCafé sales have grown strongly by ~9x over FY16-20 (~70% CAGR) and McDelivery sales have become ~6x over FY16-20 (~60% CAGR). Mc- Café/McDelivery/McBreakfast are currently available in 223/264/210 out of 319 restaurants as of FY20-end. While McCafe presence has been doubled in the last three years, McDelivery has witnessed a 77% increase in presence. Breakfast has been discontinued post Covid-19 due to a lack of footfalls, but this is likely to be reintroduced, driving higher unit revenues in the future.

Exhibit 43: Sales from McCafé have become ~9x over FY16-20 Exhibit 44: McCafé growth has been aided by both expansion and same store sales

10.0 8.7 250 223 9.0 190 8.0 6.7 200 7.0 72% CAGR 149 6.0 150 4.3 5.0 110 4.0 100 75 2.3 2.1 2.3 3.0 1.7 2.0 1.0 1.3 50 1.0 0.0 0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20

ADS Overall Sales, Mc-Café growth indexation Mc Café presence (No. of Restaurants)

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 45: McDelivery sales have become ~6x over FY16-20 Exhibit 46: McDelivery growth has been added by both expansion and same store sales 6.3 7.0 300 264 6.0 250 216 5.0 4.1 200 165 4.0 136 149 150 3.0 2.1 3.2 100 2.0 1.2 2.5 1.0 1.6 50 1.0 1.1 0.0 0 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20

ADS Overall Sales, MDS growth indexation Mc Delivery presence (No. of Restaurants)

Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021| 12 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

New launches catering to more eating out occasions

Exhibit 47: Premium Gourmet burger has been launched in FY21 Exhibit 48: Fried chicken has been launched in South India in Q1FY21

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 49: Spicy and Cheesy Rice were introduced in FY19 Exhibit 50: Breakfast menu has been revamped in FY18

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 51: McCafe portfolio was launched in FY14; Mc-Café has grown ~9x over FY16-20

Source: Company, Emkay Research

March 17, 2021| 13 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Convenience channels and digital capabilities are growth accelerators QSR players have recovered relatively faster than other casual dining restaurants due to better hygiene, much better technology infrastructure for new channels of growth like Delivery/Takeaway. Convenience channels (~50% of pre-Covid sales), which includes Delivery (MDS), Drive through and On-the-Go/takeaway channels, have recovered to pre-Covid levels in Q2FY21, while the Dine-in channel remains impacted due to lower mobility. The introduction of On-the-Go channel has effectively turned 254 out of 304 restaurants as drive- through restaurants. Earlier, WLDL was having drive-through option in only 70 restaurants. On- the-Go has seen a strong traction with 4x growth during Jul-Sep’20 time-period, although on a relatively small base. WLDL is also trying to ramp up its own delivery service by offering free delivery on its platform vis-à-vis Rs25/delivery charge earlier. WLDL has also been ahead of peers by reimaging its stores to higher standards. It plans to ramp up Experience-of-the-future (EoTF) platform in its stores, which offer consumers greater convenience while ordering and a richer store experience. EoTF was present in 10/25/66 stores as of FY18/19/20-end. EoTF provides seamless and contactless experience to its consumers with self-ordering kiosks.

Exhibit 52: QSRs have been relatively prompt in providing hygiene assurance and in introducing tech-initiatives to capture available consumer demand COVID-19 led Initiatives QSRs CDRs Contactless Experience/Hygiene branding   Takeaway/On-the-go/Curb-side (Online)   Own Mobile Application   Third Party Aggregators (Swiggy/Zomato)   Value offerings/Combo Family Packs   Source: Emkay Research

Exhibit 53: Convenience channels recovered faster; Dine-in seeing Exhibit 54: Easing of restrictions driving faster recovery in an acceleration on low comparables restaurants opened in Oct’20 vs. Jun’20

Jun'20 Aug'20 Oct'20 120 103 94 98 100 83 86 87 79 76 76 80 70 69 66 58 60 50 51 48 38 40 20 0 Bucket 1 Bucket 2 Bucket 3

1 2 3 4 5 6 7, No. of months since opening

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 55: EoTF stores with self-ordering kiosks Exhibit 56: EOTF is currently present in 66 out of 304 restaurants

70 66 60 50 40 30 25 20 10 10 0 FY18 FY19 FY20

EoTF store count number

Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021| 14 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 57: WLDL is offering attractive deals/lower prices to gain traction on its own app Price Comparison (Rs) Third Party Aggregator Own Mobile Application Mc Saver Chicken Maharaja Meal 334 279 Mc Saver Veg Maharaja Mac Meal 323 269 Mc Chicken Meal 247 175 Mexican McAloo Tikki Meal 182 129 McSpicy Paneer Meal 288 229 American Cheese Supreme Meal 247 195 Source: Emkay Research

March 17, 2021| 15 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

WLDL offers 3x expansion opportunity in South & West

WLDL’s franchisee rights to operate McDonald’s are limited to South and West regions as compared to JUBI and BK which have pan-India franchisees. However, S&W still provide a sizeable multi-year growth opportunity given McDonald’s huge under-penetration. A comparison with JUBI’s network in South & West indicates WLDL has 3x expansion opportunity in S&W cities. In addition, South and West offer a bigger addressable market with Top-6 out of 8 metros in this region and currently forms 65% of overall chain industry. Lower competition within organized, encouraging sales recovery with higher margins and cash generation can accelerate WLDL store expansion FY22 onwards, in our view. WLDL has franchisee rights to operate McDonald’s in South and West regions vs. JUBI and BK having a pan-India franchisee. South and West India (S&W) offers a large opportunity with six out of Top-8 metros falling in these states. Top-8 metros, including Mumbai, Delhi, Pune, Bengaluru, Chennai, Hyderabad, Ahmedabad and Kolkata, account for ~87% of overall chain- food-services market in India in value terms. S&W India forms ~65% of the overall chain industry and almost all QSR chains have a higher salience of their stores in S&W India markets. McDonald’s is hugely under-penetrated and has a sizable expansion opportunity in S&W. When compared with Domino’s which has 785 stores in 123 cities in S&W region, McDonald’s presence was just 319 stores across 43 cities in S&W India as of FY20 end. The scope for expansion remains immense in existing 43 cities and rest 75 unexplored cities. Relative to Domino’s, WLDL’s concentration of stores remains low beyond Top-21 cities, also indicating huge expansion scope in smaller cities. While all metros offer further penetration opportunity when compared with Domino’s, Chennai specifically remains significantly under-penetrated relative to other QSR players.

Exhibit 58: - Share of outlets in South and West is higher than North Exhibit 59: Chain industry (Rs390bn industry size) derives ~65% of and East for most of the QSR players revenues from south and west states

70 66 70 65 56 60 55 55 54 53 60 47 50 45 45 46 44 50 40 34 40 35 30 30 20 20 10 10 0 0 Dominos Subway McDonald's KFC BK Overall South and West India North and East India South & West North and East, (% of outlets) Chain market geographic revenue mix (%)

Source: Emkay Research, Technopak Source: Emkay Research, Technopak

Exhibit 60: Expansion scope remains healthy with 75 unexplored Exhibit 61: WLDL’s concentration of stores in Top-6 cities is relatively cities relative to Dominos higher and its lower in Non-Top-21 cities

1000 100% 6 17 785 17 800 80% 18 600 60%

400 319 40% 78 64 200 118 20% 43 0 0% Stores (FY20 end) Cities (FY20 end) Domino's McDonald's (S&W)

Domino's- South and West McDonald’s- South and West Top-6 Next-15 Rest, City Mix (%)

Source: Company, Emkay Research Source: Emkay Research

March 17, 2021| 16 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 62: Chennai, specifically, remains underpenetrated in no. of stores for WLDL among metros City Westlife Dominos Subway Burger King Pizza Hut Mumbai 80 138 65 31 31 Bengaluru 60 132 50 25 52 Pune 40 69 34 8 23 Hyderabad 33 64 54 12 28 Ahmedabad 18 30 21 7 8 Chennai 18 70 41 5 24 Vadodara 10 13 12 3 4 Surat 10 16 9 4 3 Source: Emkay Research

Exhibit 63: Territory map for WLDL and MMG Group; WLDL and MMG group operate McDonald’s stores in India

Source: Company, Emkay Research

Exhibit 64: Territory-wise operators of major QSRs in India Company North East West South Domino's Jubilant Foodworks Burger King Burger King India McDonald's MMG Group Westlife Development Pizza Hut Devyani Intl. Sapphire Foods KFC Both Devyani Intl. Sapphire Foods Both Source: Emkay Research

March 17, 2021| 17 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 65: Key milestones across store openings, brand extensions and cost saving initiatives undertaken by Westlife Development Year Store Opening Milestones Year Brand Extensions Milestones Year Cost Saving Milestones 1996 Opened first restaurant in Mumbai 2004 Launched McDelivery 2013 Launched Web-ordering platform 2007 Reached 50 restaurants milestone 2009 Introduced McNuggets 2014 Launched Mobile ordering app Launched RoP 2.0) platform which led to 2010 Reached 100 restaurants milestone 2010 Introduced McBreakfast 2016 20-25% savings in Capex and Opex Launched EoTF to improve customer 2012 Reached 150 restaurants milestone 2013 Launched First McCafé in Mumbai 2017 experience (self-ordering kiosks) Partnered with aggregators (Foodpanda, More than 90% restaurants have been 2015 Reached 200 restaurants milestone 2016 2019 Zomato, Swiggy) for food delivery modernized under RoP2.0 platform Revamped Breakfast Menu by introducing 66 Restaurants provide Experience of the 2017 Reached 250 restaurants milestone 2017 2020 Masala Scrambled eggs and Masala Brioche Future (EoTF) as of FY20-end 2020 Reached 300 restaurants milestone 2020 Launched premium Gourmet burgers Source: Company, Emkay Research

March 17, 2021| 18 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Store expansion has been steady; improving ability to expand faster WLDL has delivered a steady store expansion at ~9% CAGR over FY15-20 which has been in line with JUBI and better than most QSR players. While FY21 is likely to see muted expansion and a reduction in stores due to the shutdown of loss-making stores (15-20), we expect store expansion to begin and accelerate from FY22. Improving margins, cash generation, attractive rental opportunities and stronger shift to QSR’s are likely to see an acceleration in store expansion within existing QSR players. Compared with the past five years where WLDL has invested Rs5.3bn on stores vs. an operating cash generation of Rs4.2bn, we expect higher cash generation from rising profits can drive an acceleration in store expansion for WLDL as well. Our forecasts factor in margin gain to result in strong cash generation which can support a faster pace of expansion.

Exhibit 66: WLDL’s store expansion pace has been steady over the years

30 21 24 20 14 14 13 9 7 8 10 10 10 7 0

-10 -5

-20

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

FY21E FY22E FY23E

Annual Store count growth (%)

Source: Company, Emkay Research

Exhibit 67: Westlife’s expansion and scale-up in line with Domino’s, better than most peers Year of FY15-20 Brands FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Entry CAGR McDonald’s- South & West 130 161 184 209 236 258 277 296 319 8.8 McDonald’s- North & East 1996 152 155 185 160 157 166 170 168 170 1.2 McDonald’s- Total 282 316 369 369 393 424 447 464 489 5.8 Domino’s 1996 465 576 726 876 1,026 1,117 1,134 1,227 1,335 8.8 Subway 2001 330 414 476 476 568 613 638 N/A 671 7.1 KFC 2004 221 299 328 352 310 310 342 380 443 4.7 Burger King 2015 - - - 12 49 88 129 187 260 85.0 Source: Company, Emkay Research, Technopak

Exhibit 68: WLDL has invested close to Rs1bn/year on growth capex Exhibit 69: Continued margin improvement should throw more cash historically, rising OCF offer room to step up expansion for growth capex in coming years 67.0 2.5 68.0 66.5 15.0 1.9 65.6 2.0 1.7 66.0 64.1 64.0 14.0 12.0 1.4 63.1 1.5 1.3 1.2 1.1 1.2 64.0 12.1 0.9 0.9 0.9 1.0 61.4 9.0 0.9 0.8 62.0 60.7 1.0 9.0 0.6 0.5 0.5 0.5 58.8 8.5 6.0 0.5 60.0 6.8 5.0 3.0 0.0 58.0 5.1 2.0 0.0 -0.5 -0.4 56.0 -0.9

54.0 -3.0

FY15 FY16 FY17 FY18 FY19 FY20

FY21E FY22E FY23E

FY15 FY16 FY17 FY18 FY19 FY20

FY22E FY23E CFO Capex, WLDL (Rsbn) FY21E Gross Margins EBITDA margins*, (%)

Source: Company, Emkay Research Source: Company, Emkay Research,*Pre-IndAS116 EBITDA margins

March 17, 2021| 19 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

WLDL reaching critical size; scale efficiencies to accelerate margin gains

Margin expansion has been impressive from 2% to 9% over the last five years on mix improvement, operating leverage and cost-reduction efforts. Margins are still suboptimal and are targeted to reach mid-teens by FY23. With revenues and gross profit per store being the highest among peers WLDL operating margins offer substantial scope for expansion. Compared with JUBI, we believe WLDL is now reaching a critical business size where higher scale efficiencies kick in and accelerate margin gains ahead, similar to that witnessed by JUBI during FY10- 13. In addition, cost savings post Covid have been impressive and structural cost savings, in our view, will make WLDL record higher margin expansion as sales recover fully. We estimate margin gains of 500 bps over FY20-23 period, driving 20%+ EBITDA CAGR. Businesses see a sharper profitability increase as they reach a critical size. Besides faster SSG also accelerates margin expansion in QSR’s as operating leverage is higher than other consumer peers. WLDL’s unit revenues are the highest among peers, and while business scale was low, it is now reaching a critical size which should accelerate margin gains going ahead, in our view. We note JUBI recorded sharp margin gains during FY10-13 as it reached a critical size with sales of more than Rs10bn. Operating margins expanded from 12% to 18%, led by a combination of scale efficiencies and high SSG driving operating leverage. SSG growth was strong at ~26% during FY10-13 vs. ~20% in FY06-08. Despite the 20% SSG during FY06-10, margins remained stagnant at ~12% due to low scale as growth investments continued to be higher resulting in high overheads. Opex as a proportion of sales declined sharply in FY10-13 by 560bps, driving margin expansion. On a per store basis JUBI’s opex growth was higher than revenue growth from FY06-10 (22% vs. 10% revenue growth) which then started to slow down as scale efficiencies kicked in. Opex growth per store has been even slower from FY17-20 at 6% vs. revenue growth of 10%. With FY20 revenues of Rs15bn, WLDL seems to have achieved critical size. SSG recovery from FY22 and scale efficiencies kicking in, WLDL seems to be well-placed to deliver an acceleration in margin expansion. Structural cost savings post Covid and benign rental inflation may also drive upsides. Our forecasts assume unit revenues to grow from Rs50mn in FY20 (Rs35mn in FY21) to Rs59mn in FY24 with margin expansion of 530bps, which is driven by 120bps gross margin expansion and 410bps opex reduction. On a per-store basis, we estimate opex growth to slow down to 1.9% from revenue/store growth of 3.9%, as compared to opex growth being in line to revenue growth at 5% during FY16-20. Our SSG forecasts of 5% for FY20-24 appear lower than historical trends due to the Covid impact in FY21, which can see upsides on a faster recovery.

Exhibit 70: JUBI – Scale efficiencies and higher SSG drive margin Exhibit 71: JUBI - Margin expansion driven by reduction in Opex from expansion during FY09-13 scale efficiencies and operating leverage 18.7% 35% 20.0% 17.7% 64.0% 30% 17.4% 62.4% 15.5% 30% 62.0% 25% 22.5% 15.0% 20% 22.1% 12.0% 60.0% 20% 17.5% 10.0% 59.7% 58.0% 15% 10.4% 57.1% 56.0% 10% 5.0% 56.6% 5% 55.6% 54.0% 0% 0.0% 52.0% FY06-09 FY09-13 FY09 FY10 FY11 FY12 FY13

SSG sales/store growth Opex / store growth EBITDA margins Opex as % of sales

Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021| 20 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 72: WLDL reaching critical size; expect opex increase to Exhibit 73: JUBI vs WLDL SSG and margin expansion; WLDL opex moderate ahead reduction has been low in last 4 years

15% Particulars FY16-20 FY20-24E 10% 8.5% 10% 8.3% JUBI-SSG 7.8% 7% 5% 3.9% JUBI-margin expansion (bps) 360 540 5% 1.9% 0.5% 0% JUBI-Opex reduction (bps) 493 390 -1% -5% -5.1% -10% WLDL -SSG 8.6% 5% FY12-16 FY16-20 FY20-24E WLDL-margin expansion (bps) 390 550 SSG Rev/store Opex/store WLDL -Opex reduction (bps) -100 360

Source: Company, Emkay Research Source: Company, Emkay Research

Brand extensions are margin-accretive; opex reduction remains a focus WLDL’s gross margins have been on an improving trajectory from 58.8% in FY15 to 65.6% in FY20, led by higher margin brand extensions (McCafe/Delivery) supply-chain efficiencies and reduction in wastages. In addition, operating cost reduction has also been impressive with ~400bps savings in utility expenses (RoP 2.O) and 100bps savings in each of employee costs, advertisements and corporate/HO costs over FY15-FY20, leading to a 700 bps improvement in EBITDA margins. Under RoP2.O, WLDL has been able to cut both operational costs and capital expenditure by ~25%.

Exhibit 74: Product mix, supply chain efficiencies have led the Exhibit 75: Implementation of RoP 2.O platform has led to significant margin improvement cost savings over the years 14.6 68.0 14.4 18 15 13.1 15.0 15 1514 66.0 11.9 15 14 11.0 12 10 12.0 12 10 9 64.0 65.6 9 999 10 8 8.7 64.1 9 8 7 8 66 6 7 76 66 62.0 63.1 9.0 6 655 55 6 6 4444 5 61.4 3 60.0 60.7 8.5 9.0 6.0 0 58.0 58.8 6.9

5.2 5.1 3.0 Rent

56.0 Utility

Others Ad exp Ad 2.0 Royalty

54.0 0.0 costs HO FY15 FY16 FY17 FY18 FY19 FY20 Employee

Gross Margins Store Margins EBITDA margins, (%) FY15 FY16 FY17 FY18 FY19 FY20

Source: Company, Emkay Research, ^Pre-IndAS116 EBITDA margins Source: Company, Emkay Research, ^Pre-IndAS116 EBITDA margins

Exhibit 76: Scope remains for further improvement in gross margins compared to other QSRs

80 76 76 75 75 75 75 69 69 70 70 70 70 68 66 66 67 64 66 65 63 64 61 61 64 64 60 62 60 57 55 FY16 FY17 FY18 FY19 FY20 JUBI Devyani Sapphire WLDL BK

Source: Company, Emkay Research, Cogencis

March 17, 2021| 21 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Cost reset post Covid offer more margin gains ahead WLDL has retained its mid-teens operating margins guidance by FY23 (Vision 2022). With a decline in sales post Covid it has taken meaningful efforts to reach pre-Covid margins at even 10% to 15% lower sales, indicating an improvement in margins on full sales recovery. Cost- savings initiatives in H1 have been significant - employee expenses were down 35% in Q1/Q2 whereas store expenses were down 59%/36% vs. a sales decline of 75%/48%. Reduction in costs are led by a decline in variable costs along with sales as well as some structural cost savings which are likely to sustain. Rationalization of supply chain costs, reducing wastages and optimising its distribution costs are some of the initiatives to improve gross margins. On operating costs, focus has been on reducing store operating costs such as maintenance and repairs, utilities, optimising employee costs through variable pay/furloughs, renegotiation on rentals including office rental and reducing discretionary costs.

Exhibit 77: WLDL has been to manage costs efficiently despite Exhibit 78: Cost savings have been more or less in line with revenue significant loss of revenues decline

70 68.5 30 19 16 17 60 20 13 10 50 42.7 5 35.5 36.2 37.6 0 9 34.3 34.2 34.3 -1 40 35.6 -10 30 26.9 -9 -6 -18 -22 -20 -25 10.0 11.1 10.3 10.9 9.9 13.0 13.5 -30 -36 -35 20 10.3 -28 10 18.7 -40 -34 8.6 -50 0 5.5 5.8 4.9 5.5 5.5 5.3 5.2 -47 -60 -54 -70

-80 -75

Q2FY21 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q3FY21 Q3FY19 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Occupancy Employee HO costs, % sales Occupancy Employee HO Rev, YoY growth (%)

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 79: Margins recovered to pre-Covid levels despite 25% lower revenues in Q3FY21; Leaner cost structure should lead to better-than-pre-Covid margins on full revenue recovery 64.3 64.5 64.2 65.2 64.2 65.6 66.3 66.3 64.3 65.9 80.0 57.0 40.0 15.3 17.5 15.4 40.0 15.6 13.8 13.8 13.1 15.9 11.1 3.7 20.0 0.0 10.2 0.0 10.4 8.3 9.8 8.1 8.2 10.4 12.1 5.8 -40.0 -42.7 -4.9 -20.0 -80.0 -40.0 -120.0 -60.0 -61.6

-160.0 -80.0

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Gross Margins RoM EBITDA Margins

Source: Company, Emkay Research Cost comparison with peers indicate scope for further cost reduction WLDL has highest revenues per store at Rs50mn and gross profit per store at Rs33mn, which should result in higher EBITDA per store. Cost comparison on per-store basis indicates WLDL has lower rental costs vs. BK but spends higher on utility, employee, advertising and other overheads which provide room for improvement. As compared to JUBI, WLDL’s rentals and utility spends are likely to be higher due to larger stores.

March 17, 2021| 22 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 80: Cost comparison on per store basis Per-Store comparison JUBI WLDL BK (Rsmn) FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 Revenue 22.4 25.4 29.1 29.6 37.2 42.1 48.5 50.0 33.6 34.8 40.0 37.6 COGS 5.4 6.4 7.2 7.4 14.3 15.5 17.4 17.2 13.5 13.4 14.7 13.6 Rent 2.6 2.7 2.8 2.9 3.5 3.9 4.7 4.8 6.3 5.7 5.8 5.5 Utility 1.3 1.3 1.4 1.3 3.7 3.7 3.8 3.9 3.1 3.0 3.0 3.1 Employee Costs 5.1 5.1 5.5 6.0 5.7 6.4 6.9 7.1 7.5 6.5 6.2 6.2 Royalty 0.7 0.8 1.0 1.0 1.5 1.8 2.2 2.3 1.0 1.1 1.5 1.5 Advertisement 1.3 1.2 1.4 1.9 2.2 2.4 2.4 2.4 3.4 4.9 3.4 2.2 Others 3.8 4.0 4.7 4.7 4.4 5.5 6.9 7.8 4.6 4.1 4.7 4.7 EBITDA 2.2 3.8 5.0 4.4 1.9 2.9 4.1 4.5 -5.8 -3.9 0.9 0.8 Source: Company, Emkay Research, ^Pre-IndAS116 EBITDA

Exhibit 81: Cost comparison as % of sales Per-Store comparison JUBI WLDL BK (% of sales) FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 FY17 FY18 FY19 FY20 COGS 24.2 25.2 24.8 25.0 38.6 36.9 35.9 34.4 40.1 38.3 36.6 36.1 Rent 11.7 10.6 9.7 9.8 9.3 9.4 9.7 9.5 18.7 16.3 14.5 14.6 Utility 5.6 5.3 4.7 4.4 9.8 8.8 7.9 7.8 9.2 8.6 7.5 8.4 Employee Costs 23.0 20.3 19.0 20.2 15.3 15.2 14.2 14.2 22.3 18.8 15.4 16.3 Royalty 3.3 3.3 3.5 3.5 4.0 4.2 4.6 4.6 3.0 3.2 3.8 4.1 Advertisement 5.6 4.8 4.8 6.4 5.9 5.6 5.0 4.8 10.2 14.1 8.5 5.8 Others 16.9 15.6 16.2 15.9 11.9 13.0 14.2 15.6 13.8 11.8 11.7 12.5 EBITDA 9.7 15.0 17.2 14.9 5.1 6.9 8.5 9.0 -17.4 -11.1 2.1 2.2 Source: Company, Emkay Research, ^Pre-IndAS116 margins

Royalty increase from FY26 a concern but may only have a short term impact The royalty charge is expected to increase gradually from 4% of gross revenues in FY20-21 to 4.5% for FY22-23, 5% for FY24-25 and 8% thereafter. The steep jump from FY26 to 8% is relatively higher than BK/JUBI at 5%/3.5%. This has been a concern as it may have a long-term impact on profit margins. We believe WLDL has levers to expand margins gradually and offset the impact of higher royalty over time. However, a royalty charge, similar to peers would be more preferable for WLDL to generate superior/in-line profit margins and invest ahead of competition.

Exhibit 82: Royalty is expected to increase to 8% starting FY26 from Exhibit 83: Royalty charges for other QSRs is relatively lower in 4%-5% currently India as well as other McDonalds franchisees globally

10.0 6.0 5.3 8.0 8.0 8.0 8.0 8.0 5.4 5.3 5.2 8.0 5.0 4.6 4.6 4.2 4.1 4.0 3.8 6.0 5.0 5.0 4.0 3.5 3.5 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.5 4.5 3.3 3.2 3.3 3.0 4.0 3.0 2.0 2.0 0.0 1.0

0.0

FY18 FY19 FY17 FY20

FY16 WLDL Arcos Dorados JUBI Burger King

FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E

WLDL Royalty Payment (% of gross sales) FY30-40E FY17 FY18 FY19 FY20, Royalty (% of net sales)

Source: Company, Emkay Research Source: Company, Emkay Research

March 17, 2021| 23 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

FCF generation to improve, providing room for faster expansion

There is ample scope for new store additions given much lower penetration with presence in 43 cities in South and West India vs. Domino’s presence in 123 cities in South and West India. The increase in store network has been slower in past due to higher capex requirement/store (Rs25mn for McDonald’s vs. Rs10mn/store for Domino’s) vs. relatively lower profitability/cash generation, higher investments to scale-up McCafe across existing outlets and focus on sustainable expansion with longer-term leases of 20 years. Management has maintained a store addition rate of 7-8% (30-35 new store additions every year) - in line with recent trends. However, with rising profitability and cash generation, we believe WLDL is in a better position to step up its store expansion. WLDL released its Vision 2022 to have 300-350 McCafe, 300-325 McDelivery Hubs and 400- 500 restaurants by FY23E in its FY18 annual report. The company had 149/165/277 cafes/delivery hubs/stores as of FY18-end. This translated to a guidance of opening 30/30/30 net new cafes/delivery/store additions every year till FY23. WLDL planned to invest Rs5bn during this period (~Rs1bn/year). WLDL incurs a capex of Rs1.0-1.2bn/year to open ~30 stores, store reimaging and 30-40 McCafé additions. Standalone capex stands at ~Rs25mn/store. Post-tax cash flow from operations have largely mirrored EBITDA due to negative working capital requirements. WLDL operates at a negative working capital cycle of ~30 days (-8% of sales). FY20/21E cash flows are likely to be impacted due to loss of sales on account of Covid-19. But operating cash flows should improve with growth and margin improvement, starting FY22E. Further, rising OCF/FCF generation can provide scope to accelerate the pace of expansion. RoCE should remain on an improving trend with improvement in margins as well as asset turns. We expect RoCE to reach ~11% by FY23E. WLDL currently derives Rs50mn annual revenue/store at a store level EBITDA/EBIT margin of ~15%/9%. The asset turn is currently 2.0x and initial target is to take it to 2.5x with further ramp-up of Delivery/McCafe/Breakfast/new launches. This provides scope for further improvement in store level RoIC from ~18% currently to 25% over time. BK India operates at a store level EBITDA/EBIT margin of ~8%/2% and its asset turn is 1.6x currently, leading to a relatively lower RoIC of 3-4% vs. 18% for WLDL.

Exhibit 84: Store additions to remain steady at ~30/year Exhibit 85: WLDL operates at a negative working cycle of ~30 days

1.6 32 40 70 62 27 30 25 23 1.2 22 19 19 30 60 49 46 46 48 48 0.8 20 50 44 43 1.3 1.2 1.2 37 0.9 0.9 0.9 0.9 1.1 40 0.4 0.5 10 30 0.0 0 20 19 19 21 16 15 15 14 -0.4 -10 20 12 10 2 -0.8 -15 -20 2 2 2 2 2 1 1 1

FY19 FY15 FY16 FY17 FY18 FY20

FY21E FY22E FY23E

FY15 FY16 FY17 FY18 FY19 FY20

FY21E FY22E FY23E Capex (Rsmn) Net Store additons (No.) Inventory Receivable Payable, Days (No.)

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 86: Cash generation should improve with growth and margin Exhibit 87: Margin and same store sales growth should aid further improvement ROCE improvements 21.1 2.5 1.9 25.0 2.0 1.7 20.0 13.0 1.4 1.3 1.2 1.5 0.9 1.1 1.2 15.0 6.5 0.9 0.9 0.9 1.0 10.0 4.9 1.0 0.8 0.5 0.7 1.5 0.6 0.5 0.5 0.5 0.6 5.0 -2.8 -3.0 0.5 0.0 0.0 -5.0 -6.7 -0.5 -0.4 -0.5 -0.4 -0.3 -0.5-0.4 -10.0 -1.0 -0.9 -15.0

-1.5 -20.0 -13.8

FY15 FY16 FY17 FY18 FY19 FY20

FY16 FY15 FY17 FY18 FY19 FY20

FY21E FY22E FY23E

CFO (Rsbn) Capex (Rsbn) FCF (Rsbn) WLDL RoCE (%)

Source: Company, Emkay Research Source: Company, Emkay Research,^Pre-IndAS116 comparable

March 17, 2021| 24 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Valuations attractive given multi-year growth visibility

WLDL has delivered a sales/EBITDA growth of 15%/56% over the last five years. While the scale of business has increased, it is still very small given the addressable market and has a huge penetration opportunity ahead. With sales recovery being encouraging post Covid, the worst seems behind, and we expect the company to deliver growth from Q4. Margins are likely to positively surprise, led by the step-up in cost reduction as sales recover fully. We estimate WLDL to record sales/EBITDA growth of 10%/20% over FY20-24 despite the decline in FY21 due to disruption. Excluding the low comparables driving higher growth in FY22, we estimate FY23-24 sales to grow by 17% with EBITDA growth of 30% on margin gains. Our estimates factor in a margin expansion of 600bps over FY20-24E, led by low comparables in FY20, improving mix and structural cost reduction. Given the suboptimal earnings, which should rise at a higher pace vs. EBITDA growth, we value WLDL on EV/EBITDA multiple, based on pre-IndAS Jun-23E EBITDA. WLDL’s historical EV/EBITDA multiples also look very high due to very low margins/profitability. However, we estimate EBITDA margins to improve meaningfully by FY23-24E and reach a respectable level of 14-15% (pre-IndAS). Compared with JUBI, we note QSR valuations have increased on account of higher growth and market share gain outlook from closure/slower recovery of other food service segments and margin expansion from lower rentals/employee costs and cost reduction which are likely to drive upsides. Given lower profitability and ROCEs vs. JUBI, we assign a 10% discount to WLDL, valuing it at 32x Jun-23E EBITDA and arriving at a fair value of Rs600, offering a 16% upside. Our TP is also backed by long-term DCF analysis. Catalysts: Stronger recovery driving higher SSGs and further delay in royalty increase.

Exhibit 88: WLDL EV/EBITDA band Exhibit 89: JUBI EV/EBITDA band 88 50 82 COVID Impact 45 76 40 70 35 64 30 58 25 52 20 46 15 40 10 34 5 0

Jun/16 Jun/17 Jun/18 Jun/19 Jun/20

Mar/16 Mar/17 Mar/18 Mar/19 Mar/20 Mar/21

Dec/16 Dec/17 Dec/18 Dec/19 Dec/20

Sep/16 Sep/17 Sep/18 Sep/19 Sep/20

Jun/16 Jun/17 Jun/18 Jun/19 Jun/20

Mar/16 Mar/17 Mar/18 Mar/19 Mar/20 Mar/21

Dec/17 Sep/16 Dec/16 Sep/17 Sep/18 Dec/18 Sep/19 Dec/19 Sep/20 Dec/20 5 Yr Mean Plus1SD Minus1SD 5 Yr Mean Plus1SD Minus1SD 1yr fwd PE Plus2SD Minus2SD 1yr fwd PE Plus2SD Minus2SD Source: Company, Emkay Research, *1-Yr fwd Mean/SD taken for FY16-19 period Source: Company, Emkay Research, *1-Yr fwd Mean/SD taken for FY16-19 period

Exhibit 90: WLDL Premium to JUBI over the years

500 385 400 321 300 258 184 194 199 144 200 121 113 90 127 117 171 167 60 59 66 63 68 46 100 145 55 28 104 102 17 -1 0 70 45 45

-100

Jun/16 Jun/17 Jun/18 Jun/19 Jun/20

Mar/16 Mar/17 Mar/18 Mar/19 Mar/20 Mar/21

Sep/16 Dec/16 Sep/17 Dec/17 Sep/18 Dec/18 Sep/19 Dec/19 Sep/20 Dec/20

WLDL valuation premium to JUBI (%)

Source: Company, Emkay Research

March 17, 2021| 25 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Exhibit 91: Valuation of domestic and global peers CMP M-Cap Sales CAGR Net Profit CAGR EV/Sales (x) EV/EBITDA (x) P/E (x) Company (Rs) (Rs bn) FY15-20 FY21-23E FY15-20 FY21-23E FY22E FY23E FY22E FY23E FY22E FY23E Westlife Development 524 82 15 42 NA NA 5 4 42 31 303 134 Jubilant Foodworks 2963 391 13 27 61 74 8 7 41 35 66 54

CMP M-Cap Global peers CY14-19 CY20-22E CY14-19 CY20-22E CY21E CY22E CY21E CY22E CY21E CY22E (USD) (USDbn) McDonald's 220 164 -5 10 5 20 9 9 19 17 26 24 Yum China 63 26 5 15 NA 12 2 2 14 12 31 27 Chipotle Mexican Grill 1486 42 6 17 -5 55 6 5 36 29 64 49 Yum! Brands 108 32 -3 9 4 22 7 7 20 18 27 24 Restaurant Brands Intl. 64 30 36 10 32 71 6 5 14 13 24 21 Domino's Pizza 363 14 13 6 20 7 4 4 23 21 28 25 Papa John's Intl. 87 3 0 5 -42 24 2 2 19 17 38 32 Wendy's 22 5 -3 4 2 23 5 4 18 17 31 27 Alsea 29 24 21 22 7 NA 1 1 8 7 -44 38 Arcos Dorados 5 1 -4 19 NA NA 1 1 9 7 44 20 Source: Company, Emkay Research, Bloomberg

March 17, 2021| 26 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Brief business background, key milestones and profile summary of the board of directors

Exhibit 92: Brief business background of Westlife Development Head Description Westlife, through its wholly-owned subsidiary, Hardcastle Restaurants Pvt. Ltd (HRPL), owns and operates a chain of Background McDonald’s restaurants in West and South India. The Company enjoys a master franchisee relationship with McDonald’s Corporation USA, through the latter’s Indian subsidiary Westlife serves over 200mn customers annually at 304 company-owned McDonald’s restaurants and 223 company-owned Footprint McCafes located in the states of Andhra Pradesh, Telangana, Gujarat, Karnataka, Maharashtra, Tamil Nadu, Kerala and parts of Madhya Pradesh. The company employs 9,908 people. McDonald’s provides various formats and brand extensions that comprise standalone restaurants, Drive-thrus, restaurant Offerings in malls and food court restaurants. The brand extensions include McCafe, McDelivery and McBreakfast Servicing multiple segments Burger | Wraps | Rice | Chicken | Sides | Pizza puffs | Coffee | Coolers | Desserts | Delivery | Breakfast Source: Company, Emkay Research

Exhibit 93: Journey of WLDL through the years in terms of store additions and new brand extensions

Source: Company, Emkay Research

Exhibit 94: Brief profile of the Board of Directors Director Name Position Brief Profile Summary Mr. B. L. Jatia has 45+ years of experience in paper, textiles, chemicals, food processing, mining, B.L. Jatia Non-Executive Chairman hospitality, healthcare, investments and finance and retail sectors. He is currently the Managing Director of Hardcastle & Waud Mfg. Co. Ltd, which is engaged in trading of chemical products. Mr. Amit Jatia has 26+ years of QSR experience and is responsible for all aspects of the establishment Amit Jatia Executive Vice-Chairman and operation of restaurants in west and south India, including site location, acquisition, site development, equipment installation, supply chain management, product development and marketing strategy. Ms Smita Jatia comes with 20+ years of QSR experience. She has been an active member of the Smita Jatia Executive Director McDonald’s India team since the commencement and has handled various roles within the organization. She has been instrumental in launching, indigenizing and building the brand over the last 18 years. Mr. P.R. Barpande was an audit partner with Deloitte Haskins & Sells, Chartered Accountants, Mumbai P.R. Barpande Independent Director and has retired after practicing for more than 30 years. He is a Fellow of the Institute of Chartered Accountants of India. He is an Independent Director in some of the listed and private companies. Amisha Jain, CEO of Zivame, is extremely passionate about building innovation-led consumer centric Amisha Jain Independent Director brands. She is currently leading the fastest growing women's organization for intimate wear Mr. Manish Chokhani is one of India’s most respected investors and financial expert. He is an Advisor to Manish Chokhani Independent Director Axis Bank and holds board positions at Axis Capl, Enam Holdings, Zee Ent. Shopper’s Stop and WLDL Mr. Tarun Kataria runs a corporate finance advisory and private equity practice. Previously he was CEO, Tarun Kataria Independent Director India of Religare Capital Markets. Mr Kataria has also had leadership stints at HSBC. Achal Jatia Independent Director Mr. Achal Jatia is the Chairman of the Board of Directors of Hardcastle Petrofer Pvt. Ltd Source: Company, Emkay Research

March 17, 2021| 27 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Key Financials (Consolidated) Income Statement Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E Revenue 15,473 9,508 16,302 19,095 22,346 Expenditure 13,337 8,838 13,584 15,591 18,046 EBITDA 2,135 670 2,718 3,504 4,300 Depreciation 1,383 1,434 1,658 1,852 2,057 EBIT 752 (764) 1,060 1,653 2,243 Other Income 135 480 100 109 152 Interest expenses 808 828 798 941 1,048 PBT 79 (1,112) 362 820 1,346 Tax (14) (311) 92 209 343 Extraordinary Items (166) (140) 0 0 0 Minority Int./Income from Assoc. 0 0 0 0 0 Reported Net Income (73) (941) 270 611 1,003 Adjusted PAT 94 (801) 270 611 1,003

Balance Sheet Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E Equity share capital 311 311 311 311 311 Reserves & surplus 5,459 4,518 4,787 5,398 6,401 Net worth 5,770 4,829 5,099 5,709 6,712 Minority Interest 0 0 0 0 0 Loan Funds 1,837 2,337 1,837 1,337 1,037 Net deferred tax liability (214) (214) (214) (214) (214) Total Liabilities 7,394 6,953 6,722 6,833 7,536 Net block 6,258 5,806 5,891 5,925 5,895 Investment 1,935 1,635 1,635 1,635 1,635 Current Assets 1,176 1,075 1,411 1,805 2,902 Cash & bank balance 30 265 347 571 1,472 Other Current Assets 223 100 115 132 152 Current liabilities & Provision 2,201 1,789 2,439 2,757 3,122 Net current assets (1,025) (714) (1,029) (952) (219) Misc. exp 0 0 0 0 0 Total Assets 7,394 6,953 6,722 6,833 7,536

Cash Flow Y/E Mar (Rs mn) FY20 FY21E FY22E FY23E FY24E PBT (Ex-Other income) (222) (1,732) 262 711 1,195 Other Non-Cash items 0 0 0 0 0 Chg in working cap 104 (75) 396 148 168 Operating Cashflow 759 (375) 1,706 1,935 2,401 Capital expenditure (1,227) (500) (1,130) (1,202) (1,266) Free Cash Flow (467) (875) 576 733 1,134 Investments 787 300 0 0 0 Other Investing Cash Flow 0 0 0 0 0 Investing Cashflow (305) 280 (1,030) (1,093) (1,115) Equity Capital Raised 0 0 0 0 0 Loans Taken / (Repaid) (482) 500 (500) (500) (300) Dividend paid (incl tax) 0 0 0 0 0 Other Financing Cash Flow 114 0 9 9 10 Financing Cashflow (516) 331 (594) (618) (385) Net chg in cash (62) 235 81 224 901 Opening cash position 92 30 265 347 571 Closing cash position 30 265 347 571 1,472 Source: Company, Emkay Research

March 17, 2021| 28 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Key Ratios Profitability (%) FY20 FY21E FY22E FY23E FY24E EBITDA Margin 13.8 7.0 16.7 18.4 19.2 EBIT Margin 4.9 (8.0) 6.5 8.7 10.0 Effective Tax Rate (18.0) 28.0 25.5 25.5 25.5 Net Margin 0.6 (8.4) 1.7 3.2 4.5 ROCE 11.4 (4.0) 17.0 26.0 33.3 ROE 1.6 (15.1) 5.4 11.3 16.1 RoIC 14.7 (15.2) 22.7 37.1 52.1

Per Share Data (Rs) FY20 FY21E FY22E FY23E FY24E EPS 0.6 (5.1) 1.7 3.9 6.4 CEPS 9.5 4.1 12.4 15.8 19.7 BVPS 37.1 31.0 32.8 36.7 43.1 DPS 0.0 0.0 0.0 0.0 0.0

Valuations (x) FY20 FY21E FY22E FY23E FY24E PER 862.2 (100.6) 299.1 132.0 80.4 P/CEPS 54.0 126.0 41.4 32.4 26.1 P/BV 14.0 16.7 15.8 14.1 12.0 EV / Sales 5.3 8.6 5.0 4.2 3.5 EV / EBITDA 37.9 121.5 29.7 22.9 18.3 Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0

Gearing Ratio (x) FY20 FY21E FY22E FY23E FY24E Net Debt/ Equity 0.0 0.2 0.0 (0.1) (0.3) Net Debt/EBIDTA 0.1 1.2 0.1 (0.1) (0.4) Working Cap Cycle (days) (24.9) (37.6) (30.8) (29.1) (27.6)

Growth (%) FY20 FY21E FY22E FY23E FY24E Revenue 10.4 (38.6) 71.5 17.1 17.0 EBITDA 80.1 (68.6) 305.8 28.9 22.7 EBIT 93.8 (201.5) 0.0 55.9 35.7 PAT (134.2) 0.0 0.0 126.6 64.2

Quarterly (Rs mn) Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Revenue 4,329 3,364 939 2,095 3,251 EBITDA 709 379 (422) 42 501 EBITDA Margin (%) 16.4 11.3 (45.0) 2.0 15.4 PAT 144 (253) (605) (325) 1 EPS (Rs) 0.9 (1.6) (3.9) (2.1) - Source: Company, Emkay Research

Shareholding Pattern (%) Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Promoters 62.1 59.1 59.1 59.1 59.1 FIIs 17.2 12.7 10.1 10.0 9.6 DIIs 9.3 16.1 18.6 19.4 20.5 Public and Others 11.3 12.2 12.2 11.5 10.9 Source: Capitaline

March 17, 2021| 29 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Emkay Alpha Portfolio – Consumer Goods & Retail

EAP sector portfolio BSE200 OW/UW EAP Weight Company Name EAP Weight OW/UW (%) Weight (bps) (Normalised) Consumer Goods & Retail 10.35 10.35 0% 0 100.00 Asian Paints 1.33 0.52 -61% -81 5.05 Berger Paints 0.21 0.00 -100% -21 0.00 Britannia Industries 0.49 0.54 11% 5 5.25 Colgate-Palmolive 0.26 0.28 11% 3 2.75 Dabur India 0.36 0.39 9% 3 3.75 Emami 0.12 0.16 27% 3 1.52 Godrej Consumer Products 0.31 0.00 -100% -31 0.00 Hindustan Unilever 2.39 1.91 -20% -48 18.44 ITC 2.17 2.38 10% 21 23.00 Marico 0.24 0.26 6% 2 2.50 Nestle India 0.71 0.57 -20% -14 5.50 Pidilite Industries 0.31 0.00 -100% -31 0.00 Radico Khaitan 0.00 0.32 NA 32 3.07 Analyst: Ashit Desai United Breweries 0.10 0.58 477% 48 5.57 Contact Details United Spirits 0.00 0.31 NA 31 3.00 Varun Beverages 0.11 0.21 83% 9 2.00 [email protected] ABFRL 0.08 0.21 157% 13 2.00 +91 22 6612 1340 Jubilant FoodWorks 0.22 0.25 16% 4 2.45 Sector Page Industries 0.19 0.22 15% 3 2.15 Consumer Goods & Retail Shoppers Stop 0.00 0.00 NA 0 0.00 Analyst bio Titan Company 0.75 1.03 39% 29 10.00 Ashit Desai holds a PGDM and FRM (US Westlife Development 0.00 0.21 NA 21 2.00 Cash 0.00 0.00 NA 0 0.00 GARP) with 12 years of research Source: Emkay Research experience on the sell side. His team * Not under coverage: Equal Weight currently covers 24 stocks in the Indian Consumer and Retail space.  High Conviction/Strong Over Weight  High Conviction/Strong Under Weight Sector portfolio NAV Base Latest

01-Apr-19 17-Mar-20 15-Sep-20 15-Dec-20 12-Feb-21 16-Mar-21 EAP - Consumer Goods & Retail 100.0 90.5 105.5 119.1 119.8 119.1 BSE200 Neutral Weighted Portfolio (ETF) 100.0 85.8 100.6 114.6 114.8 113.1 *Performance measurement base date 1st April 2019 Source: Emkay Research Price Performance (%) 1m 3m 6m 12m EAP - Consumer Goods & Retail -0.6% 0.0% 12.8% 31.6% BSE200 Neutral Weighted Portfolio (ETF) -1.5% -1.3% 12.5% 31.9% Source: Emkay Research NAV chart

125 NAV

115

105

75 Apr-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 EAP - Consumer Goods & Retail BSE200 Neutral Weighted Portfolio (ETF) Source: Emkay Research Please see our model portfolio (Emkay Alpha Portfolio): Nifty Please see our model portfolio (Emkay Alpha Portfolio): SMID “Emkay Alpha Portfolio – SMID and Nifty are a supporting document to the Emkay Alpha Portfolios Report and is updated on regular intervals”

March 17, 2021| 30 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

Emkay Rating Distribution Ratings Expected Return within the next 12-18 months. BUY Over 15% HOLD Between -5% to 15% SELL Below -5%

Completed Date: 17 Mar 2021 09:35:12 (SGT) Dissemination Date: 17 Mar 2021 09:36:12 (SGT)

Sources for all charts and tables are Emkay Research unless otherwise specified.

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March 17, 2021| 31 Westlife Development (WLDL IN) India Equity Research | Initiating Coverage

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2 Financial interest is defined as interest that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at the arm’s length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL): Disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-:

1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of March 17, 2021 2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report Disclosure of previous investment recommendation produced: 3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months. 4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of March 17, 2021. 5. EGFSL, its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the March 17, 2021 6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months. 7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection with the research report. 8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the March 17, 2021

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professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, United Arab Emirates financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities United States held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, Other jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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